When the state legislature revived the controversial 421a tax abatement in April, it drastically limited the number of exemptions available to condominium developers. And now, a new rule from the city’s Housing Preservation and Development agency will make it even more difficult for condo developers to receive the 421a benefit.
Deal-makers in Albany wrote into law a provision that limits the number of qualifying projects to being in the outer boroughs, and only at 35 units or fewer. The new 421a law, now called Affordable New York, also requires that condo units have an average tax assessment value of less than $65,000. Under the new law, apartment owners also have to agree to use the apartments as their primary residence for at least five years.
The last requirement: In order to even apply for the tax exemption, developers must have a sales contract on every single unit in the project within a year of the building’s completion. That could prove a tough feat in the emerging real estate markets where the exemption was most likely to be used in the first place.
“Most sponsors don’t have 100 percent sellout at the time of completion,” said Alvin Schein, a real estate attorney with several developer clients. Making it more difficult to meet that sales benchmark, Shein said, is the inability for developers to market the units based on a tax exemption they may never qualify for in the first place.
Derek Bestreich, a development site broker in the outer boroughs who specializes in small- and medium-sized sites, said none of his clients considered developing a condo with the abatement. “Of all the sites we sold this year, no one has brought up the new 421a program for condo development,” he said. “I don’t think they’re doing the 421a program.”
In December, Politico reported that Brooklyn state senators Simcha Felder (D) and Marty Golden (R) were working on a plan to allow the rebooted 421a to include more expensive condo projects, though they ultimately fell short. In the months before the final vote, Mayor Bill de Blasio expressed concerns that the new bill would end up including major concessions to condo developers.
Though originally enacted in the 1970s to generally spur residential construction, the tax exemption is now viewed by most lawmakers as an affordable housing program, even though the majority of apartments constructed with the benefit are rented at market rates.
(Source: The Real Deal)
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